Texas Appellate Court Upholds Contractor’s Arbitration ClauseJuly 1, 2020 – Alerts
Businesses often utilize arbitration clauses in their contracts to avoid the alleged “uncertainty” of a trial, with the goal of achieving a faster and more cost-efficient resolution. A recent holding by the Texas 13th Court of Appeals reinforces the longstanding notion that Texas courts strongly favor arbitration, and highlights the importance of understanding the effect such a clause will ultimately have on who decides a dispute arising out of the contract. Although many vanilla arbitration clauses are boilerplate in nature, including one in a contract will likely waive one’s right to a jury trial.
In drafting and negotiating a contract, parties are largely focused on obtaining the “best” available terms. However, when a dispute arises, many businesses are surprised to learn they have waived their right to a trial and are instead faced with resolving their dispute through mandatory arbitration.
Presumption in Favor of Arbitration
Texas Courts have held that the presumption in favor of arbitration is so compelling that a court should not deny arbitration unless it can be said with positive assurance that an arbitration clause is not susceptible to an interpretation that would cover the dispute at issue. Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 899 (Tex. 1995) (quoting Neal v. Hardee’s Food Sys., Inc., 918 F.2d 34, 37 (5th Cir. 1990)).
Facts of the Case
Despite this strong presumption in favor of upholding arbitration clauses, parties continue to contest the validity of such clauses. The 13th Court of Appeals in Roland’s Roofing Co., Inc. v. Nationwide Mutual Insurance Company and Haidar Properties, LLC held the arbitration clause at issue was valid and legally served to compel the parties to arbitration. The Roland’s Roofing case involved claims brought against a roofing contractor for allegedly causing a structure to catch fire after it replaced a metal roof following a hail storm. The court noted that the contract between the building owner and the roofing contractor contained an arbitration provision, and even though the building owner’s insurance carrier was the party that brought suit for the fire damage, the appellate court held that the arbitration clause must be enforced. In rendering its opinion, the Corpus Christi Court of Appeals reaffirmed past precedent in finding that even a nonparty may be compelled to arbitration “if it deliberately seeks and obtains substantial benefits from the contract itself.”
Issues to Consider
Arbitration offers many benefits over traditional courthouse litigation. While traditional litigation often includes drawn-out legal battles and substantial case expenses, arbitration is designed to reach a swift resolution while reducing costs. However, mandatory arbitration also amounts to a complete waiver of one’s right to a trial, and is far from a one-size-fits-all forum for a legal dispute.
Accordingly, it is paramount to understand the effect of any arbitration clause in your contract and consider whether arbitration is the best fit for you or your business in the event an issue arises. Such an analysis should always be considered when a contract is being drawn up. If not, a party later seeking to avoid arbitration will likely need to present a compelling argument to rebut the staunch presumption echoed in Roland’s Roofing.
For additional information on arbitration clauses contact Robert Palmer at [email protected] or 214.231.5743; or Adam Hamilton at [email protected] or 214.231.5783; or any member of the firm’s national Construction Practice.